Category: Public Choice

Public Policies Choke Off Entrepreneurial Opportunities

George McGovern was the Democratic candidate for President of the United States in 1972. He was a fervent advocate for expansion of the federal government.

(p. A12) We intuitively know that to create job opportunities we need entrepreneurs who will risk their capital against an expected payoff. Too often, however, public policy does not consider whether we are choking off those opportunities.

My own business perspective has been limited to that small hotel and restaurant in Stratford, Conn., with an especially difficult lease and a severe recession. But my business associates and I also lived with federal, state and local rules that were all passed with the objective of helping employees, protecting the environment, raising tax dollars for schools, protecting our customers from fire hazards, etc. While I never have doubted the worthiness of any of these goals, the concept that most often eludes legislators is: “Can we make consumers pay the higher prices for the increased operating costs that accompany public regulation and government reporting requirements with reams of red tape.” It is a simple concern that is nonetheless often ignored by legislators.
For example, the papers today are filled with stories about businesses dropping health coverage for employees. We provided a substantial package for our staff at the Stratford Inn. However, were we operating today, those costs would exceed $150,000 a year for health care on top of salaries and other benefits. There would have been no reasonable way for us to absorb or pass on these costs.
Some of the escalation in the cost of health care is attributed to patients suing doctors. While one cannot assess the merit of all these claims, I’ve also witnessed firsthand the explosion in blame-shifting and scapegoating for every negative experience in life.
Today, despite bankruptcy, we are still dealing with litigation from individuals who fell in or near our restaurant. Despite these injuries, not every misstep is the fault of someone else. Not every such incident should be viewed as a lawsuit instead of an unfortunate accident. And while the business owner may prevail in the end, the endless exposure to frivolous claims and high legal fees is frightening.

For the full commentary, see:
McGovern, George. “Manager’s Journal: A Politician’s Dream Is a Businessman’s Nightmare.” The Wall Street Journal (Mon., June 1, 1992): A12.

“Tax and Regulatory Policies” Influence Intel to Build Arizona Chip Plant

(p. B1) SAN FRANCISCO — Intel, the world’s largest computer chip manufacturer, will invest $7 billion to finish a factory in Arizona, adding 3,000 jobs, the company’s chief executive said on Wednesday after meeting with President Trump at the White House.
The completion of the factory, which will complement two other Intel semiconductor plants in Chandler, Ariz., had been under consideration for several years.
Standing beside Mr. Trump in the Oval Office, Brian Krzanich, Intel’s chief executive, said the company had decided to proceed now because of “the tax and regulatory policies we see the administration pushing forward.”

For the full story, see:
VINDU GOEL. “Intel Will Invest $7 Billion in Chip Plant in Arizona.” The New York Times (Thurs., FEB. 9, 2017): B1-B2.
(Note: the online version of the story has the date FEB. 8, 2017, and has the title “Intel, in Show of Support for Trump, Announces Factory in Arizona.”)

Coastal Damage Caused by Storm Surges at High Tide, Not by Tiny Rise in Sea Levels

(p. A11) When Teddy Roosevelt built his Sagamore Hill on Long Island, he did so a quarter mile from shore at an elevation of 115 feet not because he disdained proximity to the beach or was precociously worried about climate change. The federal government did not stand ready with taxpayer money to defray his risk.
Estimates vary, but sea levels may have risen two millimeters a year over the past century. Meanwhile, tidal cycles along the U.S. east coast range from 11 feet every day (in Boston) to two feet (parts of Florida).
On top of this, a “notable surge event” can produce a storm surge of seven to 23 feet, according to a federal list of 10 hurricanes over the past 70 years.
We should not exaggerate the degree to which homeowners are being asked to shoulder their own risks. Washington is doling out five-figure checks to Jersey homeowners to raise houses on pilings to reduce the federal government’s future rebuilding costs. But, to state the obvious, normal tidal variation plus storm surge is the danger to coastal property. Background sea-level rise is a non-factor. A FEMA study from several years ago found that fully a quarter of coastal dwellings are liable to be destroyed over a 50-year period.
Though it pleased New York Gov. Andrew Cuomo to pretend Superstorm Sandy in 2012 was caused by global warming, the storm wasn’t even a hurricane by the time it hit shore–it just happened to hit at peak tide. Sure, certain people in Florida and elsewhere like to conflate the two. It’s in their interests to do so.

For the full commentary, see:
HOLMAN W. JENKINS, JR. “Shoreline Gentry Are Fake Climate Victims.” The Wall Street Journal (Sat., Nov. 26, 2016): A11.

NASA Funding Depends on “Pure Pork-Barrel Politics”

(p. A15) “Beyond Earth” is delightfully different from any other book I’ve ever read by human-spaceflight cheerleaders. The authors have put their thinking caps on and broken out of the usual orthodoxy by presenting cogent ideas on why humans should go into space, including their lovely idea of going to and living on obscure (to most folks) Titan. We go, they say, because we need to go, not just to explore and study but to find another place to live and, if we want to, screw it up just as much as we have screwed up Earth, because that’s what we do, that’s what makes us human. We may make mistakes but, by God, we also produce great civilizations and art and, yes, science in the process. We’ve done Earth, so let’s now go wherever our abilities take us and physics allow.
. . .
The one great truth I always tell people wanting to understand the American space program is this: The federal government doesn’t give a flip about human spaceflight. That’s why Apollo was canceled just as it hit its stride, why the shuttle program was underfunded from its inception, and why, after the shuttle was retired, NASA had nothing to replace it with. No one who holds the purse strings for NASA really cares whether American astronauts ever go anywhere. It’s just not that important to a country beset with a vast array of pressing problems.
What keeps the current space program going at all is pure pork-barrel politics. That’s why President Obama didn’t blink an eye when he signed NASA budgets that provided funds to build a giant rocket called the Space Launch System, which has no well-defined purpose, as well as a crewed capsule called Orion, which has no specifically assigned places to go. As proof that spending money isn’t evidence of support, there wasn’t one dime in those budgets to procure and deliver the accouterments needed for true human space endeavors–no space suits, no planetary landers, no rovers, no habitats, nothing but the bottom and top of a big, expensive rocket that will require a vast marching army to operate for no apparent reason.

For the full review, see:
HOMER HICKAM. “BOOKSHELF; Forget Mars, Aim for Titan.” The Wall Street Journal (Fri., December 16, 2016): A15.
(Note: ellipsis added.)
(Note: the online version of the review has the date Dec. 15, 2016,)

The book under review, is:
Wohlforth, Charles, and Hendrix. Amanda R. Beyond Earth: Our Path to a New Home in the Planets. New York: Pantheon, 2016.

Government Wastes Millions on Corrupt Nanotech Boondoggle

(p. A19) In Utica, a former industrial hub in upstate New York where the near collapse of manufacturing has made for a scarcity of jobs and a rarity of good news, the announcement in August 2015 that an Austrian chip maker had decided to put down roots in a fabrication plant built by the state was cause for jubilation.
Gov. Andrew M. Cuomo celebrated with an appearance in Utica, promising $585 million in state funds to cement the public-private partnership, which was to create 1,000 jobs. Some in the crowd wept with emotion.
But last week, after months of delays and mismanagement that culminated in September with federal prosecutors revealing a far-reaching bribery and bid-rigging scheme, state and local officials said that the Austrian chip maker, AMS, had abandoned the project.
The Utica project was merely one chunk of the multibillion-dollar investment with which the Cuomo administration has pledged to seed nanotechnology and high-tech industries in upstate cities starved for economic growth.
. . .
For the state, it seems, the strategy developed by Mr. Kaloyeros and trumpeted by Mr. Cuomo — to lavish hundreds of millions of dollars in state subsidies on corporate partners to create high-tech jobs — is unblemished. Yet the model has come in for repeated criticism from government watchdogs, who say an economic policy that tries to create risky new industries virtually from scratch, and that spends millions in taxpayer dollars to create every new job, is folly.
“We’re incredibly skeptical of the economic logic behind these projects because they’re too expensive,” said John Kaehny, the executive director of Reinvent Albany, a good-government group. “There is no economic logic to (p. A21) this, really. But there’s a huge political logic to it. The governor desperately needs for this to be a success for his political legacy in New York.”

For the full story, see:
VIVIAN YEE. “How Missteps Doomed Plan for Growth, Foiling Cuomo.” The New York Times (Weds., DEC. 28, 2016): A19.
(Note: ellipsis added.)
(Note: the online version of the story has the date DEC. 27, 2016, and has the title “How Cuomo’s Signature Economic Growth Project Fell Apart in Utica.”)

Tech Firms Rally Their Customers to Fight Restrictive Regulations

(p. A23) The nasty battle between Uber and the administration of Mayor Bill de Blasio over New York City’s proposed cap on livery vehicles has ended, at least for now, with the city and the ride-hailing giant agreeing to postpone a decision pending a “traffic study.” There’s no doubt who won, though. The mayor underestimated his opponent and was forced to retreat.
It wasn’t just conventional pressure — ads, money, lobbying — that caught the mayor off guard. Uber mobilized its customers, leveraging the power of its app to prompt a populist social-media assault, all in support of a $50 billion corporation. The company added a “de Blasio’s Uber” feature so that every time New Yorkers logged on to order a car, they were reminded of the mayor’s threat (“NO CARS — SEE WHY”) and were sent directly to a petition opposing the new rules. Users were also offered free Uber rides to a June 30 rally at City Hall. Eventually, the mayor and the City Council received 17,000 emails in opposition. Just as Uber has offloaded most costs of operating a taxi onto its drivers, the company uses its customers to do much of its political heavy lifting.
Uber’s earlier strategy to win entry into the Portland, Ore., market followed a similar pattern. When the city wasn’t allowing the company to operate taxis, Uber exploited rules that allowed it to act as a delivery company, and distributed free ice cream around town. Using data on these deliveries, the firm shrewdly recruited recipients as pro-Uber citizen lobbyists, pressuring local officials to allow their cars to pick up passengers. It worked.
Many tech firms now recognize the organizing power of their user networks, and are weaponizing their apps to achieve political ends. Lyft embedded tools on its site to mobilize users in support of less restrictive regulations. Airbnb provided funding for the “Fair to Share” campaign in the Bay Area, which lobbies to allow short-term housing rentals, and is currently hiring “community organizers” to amplify the voices of home-sharing supporters. Amazon’s “Readers United” was an effort to gain customer backing during its acrimonious dispute with the publisher Hachette. Emails from eBay prodded users to fight online sales-tax legislation.

For the full commentary, see:
EDWARD T. WALKER. “The Uber-ization of Activism.” The New York Times (Fri., AUG. 7, 2015): A23.
(Note: the online version of the commentary has the date AUG. 6, 2015.)

Government Sugar Protectionism Kills More Jobs than It Saves

(p. A13) As if domestic price-fixing by the government–here, driving prices up by setting production limits–weren’t enough, the feds then set a limit on sugar imports, and punish any imports above that limit with heavy tariffs.
The result? Countries such as Canada openly advertise to U.S. companies that use sugar–for instance, in the food industry–that they will enjoy lower business costs if they move. And when companies leave, like some candy makers that have moved production overseas, they take their jobs with them. Even the Commerce Department admits that for every job that the sugar program “protects,” it kills three others.
Reforming this policy sounds like a no-brainer, but the small number of beneficiaries use their benefits to influence–by lobbying, for instance, or with campaign contributions–politicians who block any reforms. No wonder sugar was the only commodity program not to be reformed by having its subsidies reduced in the most-recent farm bill, in 2013.

For the full commentary, see:
JOE PITTS and DAVID MCINTOSH. “Your Funny Valentine Candy Pricing; Making a box of chocolates more expensive is one of many ways federal sugar policy hurts U.S. taxpayers.” The Wall Street Journal (Fri., Feb. 12, 2016): A13.
(Note: the online version of the commentary has the date Feb. 11, 2016.)

Better Policies Can Turn Stagnation into Growth

(p. A19) . . . , now ought to be the time that policy makers in Washington come together to tackle America’s greatest economic problem: sclerotic growth. The recession ended more than seven years ago. Unemployment has returned to normal levels. Yet gross domestic product is rising at half its postwar average rate. Achieving better growth is possible, but it will require deep structural reforms.
The policy worthies have said for eight years: stimulus today, structural reform tomorrow. Now it’s tomorrow, but novel excuses for stimulus keep coming. “Secular stagnation” or “hysteresis” account for slow growth. Prosperity demands more borrowing and spending–even on bridges to nowhere–or deliberate inflation or negative interest rates. Others advocate surrender. More growth is impossible. Accept and manage mediocrity.
But for those willing to recognize the simple lessons of history, slow growth is not hard to diagnose or to cure. The U.S. economy suffers from complex, arbitrary and politicized regulation. The ridiculous tax system and badly structured social programs discourage work and investment. Even internet giants are now running to Washington for regulatory favors.
. . .
So why is there so little talk of serious growth-oriented policy? Regulated and protected industries and unions, and the politicians who extract support from them in return for favors, will lose enormously. The global policy elite, steeped in Keynesian demand management for the economy as a whole, and microregulation of individual businesses, are intellectually unprepared for the hard project of “structural reform”–fixing the entire economy by cleaning up the thousands of little messes. Even economists fight to protect outdated skills.

For the full commentary, see:
JOHN H. COCHRANE. “Don’t Believe the Economic Pessimists; Memo to Clinton and Trump: The U.S. economy can and will grow faster with the right policies.” The Wall Street Journal (Mon., Nov. 7, 2016): A19.
(Note: ellipses added.)

$19 Billion in Farm Subsidies Mostly Go to Big Farms

(p. A17) President-elect Donald Trump’s vow to “drain the swamp” in Washington could begin with the Agriculture Department. Federal aid to farmers is forecast by the Congressional Budget Office to soar to $19 billion in 2017. Farmers will receive twice as much of their income from handouts (25%) this year as they did in 2013, according to the USDA. Whoever Mr. Trump names as his agriculture secretary should target wasteful farm programs for spending cuts.
. . .
While generous government subsidies are defended by invoking the “family farmer,” big farmers snare the vast majority of federal handouts. According to a report released this year by the Environmental Working Group, a Washington-based nonprofit research organization, “the top 1 percent of farm subsidy recipients received 26 percent of subsidy payments between 1995 and 2014.” The group’s analysis of government farm-subsidy data also found that the “top 20 percent of subsidy recipients received 91 percent of all subsidy payments.” Fifty members of the Forbes 400 list of wealthiest Americans have received farm subsidies, according to the group, including David Rockefeller Sr. and Charles Schwab.

For the full commentary, see:
JAMES BOVARD. “Living Off the Fat of Washington; If Trump is going to ‘drain the swamp,’ he might start with wasteful ag subsidies.” The Wall Street Journal (Mon., Dec. 12, 2016): A17.
(Note: ellipsis added.)
(Note: the online version of the commentary has the date Dec. 11, 2016.)

Infrastructure Costs Often Exceed Benefits

(p. A13) Most federal infrastructure spending is done by sending funds to state and local governments. For highway programs, the ratio is usually 80% federal, 20% state and local. But that means every local district has an incentive to press the federal authorities to fund projects with poor national returns. We all remember Alaska’s infamous “bridge to nowhere.”
In other words, if a local government is putting up only 20% of the funds, it needs the benefits to its own citizens to be only 21% of the total national cost. Yet every state and every locality has potential infrastructure needs that it would like the rest of the country to pay for. That leads to the misallocation of federal funds and infrastructure projects that benefit the few at the cost of the many.
. . .
Japan tried infrastructure-heavy serial fiscal stimuli for decades and is trying again under Prime Minister Shinzo Abe. Yes, Japan now has many new bridges, roads and paved drainage ditches, but the spending has done little to improve Japan’s meager growth rate.

For the full story, see:
MICHAEL J. BOSKIN. “All Aboard the Infrastructure Boondoggle; Whoever wins on Nov. 8, a flood of public-works money is coming. Cost-benefit tests are crucial.” The Wall Street Journal (Tues., Nov. 1, 2016): A13.
(Note: ellipsis added.)
(Note: the online version of the article has the date Oct. 31, 2016.)

Tesla Fights Car Dealership Monopoly

(p. B4) Tesla Motors Inc. filed an application for a dealership license in Michigan, setting up a potential legal fight over the state’s ban on selling cars directly to consumers.
. . .
About a year ago, Michigan passed a law prohibiting car makers from selling directly to customers in the state without an independent dealer as an intermediary. Tesla has opposed such dealer-franchise laws, calling them anticompetitive. Tesla allows customers to order vehicles directly from the company, something that other manufacturers are prohibited from doing.
A formal denial of its application by Michigan could prompt Tesla to pursue additional legal avenues to fight a law it calls “very harmful.”
“Tesla is committed to being able to serve its customers in Michigan, and is working with the legislature to accomplish that. The existing law in Michigan is very harmful to consumers,” a Tesla spokeswoman said. “Tesla will take all appropriate steps to fix this broken situation.”
. . .
Michigan and Texas are among a small group of states that have a flat prohibition on any direct sales. The laws were created to prevent car makers from building their own stores that would ​then ​compete with independent​dealerships. Michigan Automotive Dealers Association couldn’t immediately be reached for comment.
Such competition could potentially undercut independent dealerships’ prices and undermine investments made in their stores, according to lawyers and economists who have scrutinized dealer-franchise laws.

For the full story, see:
Ramsey, Mike. “Tesla Seeks License to Sell Cars in Michigan.” The Wall Street Journal (Tues., Feb. 2, 2016): B4.
(Note: ellipses added.)
(Note: the online version of the article has the date Feb. 1, 2016, and has the title “Tesla Motors Files for a Dealership License in Michigan.” The online version is slightly different from the print version. The passage quoted above is from the online version.)